Scot free

The Charities and Trustee Investment (Scotland) Act has redefined some of the investment powers of Scottish charities. Simon Mackintosh outlines the new opportunities and responsibilities for independent schools

Scottish charities – and particularly independent schools – might be forgiven for thinking that the Charities and Trustee Investment (Scotland) Act 2005 (the 2005 Act) is all about regulation and definition.

After all, we have a new Regulator, a new definition of charitable purposes, a new public benefit test, and the Regulator has just published the results of its pilot study for its Rolling Review, which included one independent school, Dundee High School.

While the purposes of the 2005 Act undoubtedly included creating a proper regulatory framework for Scottish charities, and bringing the definition of charitable purposes up-to-date, there were other aims too – including making life easier for Scottish charities, in particular with investments.

The “trustee investment” part of the 2005 Act gives all Scottish trusts (not only charities) wide investment powers along the lines suggested in the joint report of the Law Commission and the Scottish Law Commission which led to the Trustee Act 2000.

Very broadly, this part of the Act:

• extends the general powers of trustees to make any kind of investment of the trust estate (including an investment in land);

• does away with the Trustee Investments Act 1961 list system and the requirement to divide into narrower and wider range funds;

• requires trustees in exercising those powers to consider the suitability to the trust of the proposed investment, and the need for diversification appropriate to the circumstances of the trust;

• establishes a requirement to obtain and consider proper advice about the way in which the power should be exercised;

• confers upon trustees the power to appoint nominees subject to proper selection and monitoring of the nominee; and

• declares that trustees have and always have had the power to delegate investment management functions on a discretionary basis (thereby removing a major area of uncertainty).

In addition to those welcome extensions to the general investment powers of Scottish trustees (governors), the 2005 Act also states (in Section 96(1)) that “every charity has the power to participate in common investment schemes and common deposit schemes”. The phrases “common investment scheme” and “common deposit scheme” have the meanings given to them by the Charities Act 1993. The power does not apply where there is specific exclusion of investment into such schemes.

This short and simple section opens up a whole new area of prospective investments for Scottish charities, quite apart from the wider investment powers conferred by the 2005 Act. Until now, participation in common investment funds (CIFs) and common deposit funds has been restricted to charities established under the law of England and Wales. Scottish (and Northern Irish) charities were denied access to the benefits of using these schemes, including the ability to receive gross distributions and the lower dealing costs which come from charities’ exemption from stamp duty and other benefits, which include the possibility of finding funds with appropriate ethical/socially responsible remits.

The final piece in the legislative jigsaw has been put into place with the amendment to the Charities Act 1993, which enables Scottish and Northern Irish charities to participate now in these funds.

The availability of CIFs and common deposit funds to Scottish independent schools that are charities is a major extension to their investment powers and opens up a number of new possibilities for their investment policies, which should be considered with the schools’ advisers.

Simon Mackintosh is a partner and Head of the Charities Unit at Turcan Connell. Simon can be contacted on 0131 228 8111 or sam@turcanconnell.com

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